Fed boost helps some home loan seekers

The Federal Reserve's decision to inject another $1.2 trillion into the U.S. economy won't cure the ailing housing market, but analysts say it's good news for people who can qualify for a loan.

Borrowers with strong credit “will get the lowest mortgage rates in quite some time,” said Dean Baker, an economist with the Center for Economic and Policy Research in Washington.

Nationally, the interest rate on 30-year, fixed-rate mortgage was 4.94 percent yesterday, financial publisher HSH Associates reported. That was down almost a quarter-point from Wednesday and the lowest rate since HSH began keeping track in 1979.

HSH Vice President Keith Gumbinger cautioned borrowers not to get too excited about the drop in rates, however.

“We went from just above 5 percent to just below 5 percent,” he said. “It means a slightly lower monthly payment, which most borrowers would welcome, but you still need to have good credit.”

Dave McDonald, president of the San Diego County chapter of the California Association of Mortgage Brokers, said the Fed's latest move will provide some short-term relief to the local housing market.

While it won't loosen credit, it will lower interest rates for a short period, generating more sales for low-to-medium-range properties. It also should help generate more refinance activity, McDonald added.

The Fed is seeking to reduce borrowing costs and stimulate economic activity. The latest move calls for buying up to $300 billion in long-term U.S. Treasury bonds and increasing purchases of mortgage-backed securities by $750 billion.

The Fed's latest action is highly inflationary, warned Kelly Cunningham, an economist with the National University System Institute for Policy Research in San Diego.

“This will cause not only inflation but hyperinflation,” Cunningham said. “It will hurt investments. It makes money worth less, and that, to me, is what is frightening about it.”

Traditionally, the Fed has relied on lowering some short-term interest rates it controls to end recessions, but that strategy no longer seems to be working.

Sean O'Toole, founder of the Foreclosure Radar research firm, said the Fed's strategy will backfire if investors lose faith in the value of U.S. currency. The Fed “can't simply print money for everyone seeking credit,” O'Toole said.